Sales Slip

Even before Pfizer blinked, companies were asking, "What ails sales?" In this annual survey, 50-plus pharmas and biotechs answer the hard questions about reps' productivity, profitability, and what to do about it.

About the Survey: In this 16th Annual Sales Force Effectiveness Survey, Hay Group explored pharmaceutical companies' pay practices as well as their plans to address growing challenges. The global management consultant group teamed up with Pharmaceutical Executive to survey 62,310 employees from 53 US pharma and biotech companies. Executives from sales, marketing, and business development were surveyed in the spring of 2006, and represented a broad spectrum of industry players in terms of sales-force size, revenue, and type of ownership.

Slowing Salaries

Movies like Star Wars or—a more topical example, given the slasher context—Texas Chainsaw Massacre have helped cement the role of the "prequel" in a cinematic franchise. This new film genre is based on moviegoers' intrinsic interest in knowing not just how a great story ends but in how it all started.

Linking real life to the silver screen, the Hay Group's 16th Annual Sales Force Effectiveness Survey offers a prequel to Pfizer's high-profile reduction in its sales force—a 20-percent cut last November with additional cuts predicted this year. The bulk of this research was conducted in the spring of 2006. Even then, most companies were beginning to grapple with the dwindling profitability of their primary care physician (PCP) sales reps. They knew that most PCP reps are relegated to jobs of merchandising, yet command the salaries of consultative selling. They also knew that paying these reps without a justified return couldn't go on forever. The drama, then, as this report captures, is not just in the coming rationalization of pharma's sales forces, but also companies' strategies and tactics as they prepare for this change.

The survey's most telling finding may be that, for many companies today, the effort required to administer complex compensation plans for PCP reps—complete with algorithms, matrices, and the rest—seems out of whack with their actual worth. Companies have intentionally made their incentive-compensation schemes quite elaborate in an effort to precisely direct reps' performance toward corporate goals. Now, with no end in sight to the sales-force-profitability slide, they are finding that these incentive programs come with too many administrative headaches.

The trends outlined by the survey convey the general sense that a shakeup—or shakedown—was in store for sales forces industrywide. Still, there were some surprises.

Sales-force expansion, while less common, is still happening, particularly in the specialty and managed-care areas, where companies are staffing up for new product launches aimed at specialists and to handle the increasing influence of third-party payers.

Voluntary attrition remains very high among PCP and specialty reps, with compensation the number-one reason given for high performers leaving their pharmaceutical employers. On average, pharma sales reps are paid 15 percent more than employees in comparable positions in other industries.

Comparing Comps

However, for PCP reps in particular, total cash compensation is stagnating for the first time. But even as reps are feeling a financial pushback, key marketing positions are seeing healthy growth in total cash compensation.

The following report provides a snapshot of pharma companies' current compensation structure for PCP reps—and all the administrative difficulties it presents—and spotlights emerging trends and practices for pharma's evolving sales model.